Options to Increase Exposure in an Attractive Stock Market
A couple weeks ago fear and pessimism seemed to have returned to the stock market. That said I think things are starting to look interesting in the stock market. Stock prices have come down (roughly 15% by my estimation) since the highs in April 2010.
However my wife and I have our investments on autopilot. Every month we make automatic contributions to my 401(k) and our Roth IRAs and will hit the contribution limits by the end of the year. Beyond these monthly contributions we don't have a sizable cash position sitting around that we can utilize - so how do we "double-down" if I think the market has some compelling investment opportunities?
Here are the options I think we have to further capitalize on attractive stock investment opportunities:
- Change Investment Allocations - Most portfolios have a certain allocation of stocks and bonds. I could increase exposure to the stock market by reducing the allocation of bonds in my portfolio.
- Reallocate traditional 401(k) contributions to Roth 401(k) contributions - Today 100% of my 401(k) contributions are traditional or tax deferred. Changing my contributions to a Roth 401(k) would allow me to effectively put more money in the market since these will be after-tax dollars rather than pre-tax dollars. Ofcourse this does mean my current year's tax bill will be higher.
- Convert Traditional IRA to Roth IRA - Same principal applies here as well - I could take our existing traditional IRA holdings and convert them to a Roth IRA. As a result I would be taking pre-tax investment dollars and turning them into post-tax dollars. This would require me to pay higher taxes now, but all returns earned on those dollars would be tax free if withdrawn properly.
- Slow down additional mortgage principal payments and reallocate that money to stock purchases - I could reallocate some of our monthly cash flow (that money that today we put towards paying down our mortgage) and invest it. This is kind of a monthly decision for me anyway - we generally have some $$ left each month and I have to allocate them to mortgage paydown, stock investments, cash savings, etc although lately I have been just making mortgage principal payments.
- Delay/defer spending to boost monthly cash flow that can be invested -The family could clamp down on discretionary expenses and free up month cash that would could put into the stock market. As I have mentioned we have a Wish List of Major Purchases that we have been spreading out over the year and we could just put this on hold to free up ~$400-$500/mo of our cash flow. Between this and the mortgage principal payments we could probably squeeze $500-$1,000/mo out of our cash flow that could invested in the stock market.
- Pull money from our HELOC (ie out of our real estate holdings) and use that for stock investments - I have never felt confident enough to do this, but this would mean reallocating money in our real estate holdings to our sotck investments by using a equity line.
As our portfolio continues to grow and our monthly cash flow remains more or less the same I think we are going to be utilizing potentially all of these tactics until we have a large cash stockpile on our balance sheet. Any other ideas out there on how to increase exposure to the stock market if you don't have a large cash position to utilize?
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